Banking sector insiders stated that in an effort to address issues that may cause further bank failures, U.S. bank supervisors are scrutinizing lenders’ risk management procedures more closely and enforcing disciplinary punishment when necessary.
Adapting A Rigorous Approach
The adjustments come following the failure of First Republic Bank, Silicon Valley Bank, and Signature Bank earlier this year due to depositor runs that were partly caused by concerns that rising interest rates would negatively impact bank balance sheets. Official evaluations have revealed that frontline examiners did not always take prompt action when they identified issues, therefore they are adopting a more aggressive and rigorous approach.
Interviews with twelve business leaders, attorneys, and government representatives reveal that examiners are conducting unannounced assessments of a crucial, private supervisory bank health rating. They are urging top executives to take personal responsibility for resolving the banks’ issues and are increasingly warning big banks that if they don’t correct errors, they would be subject to an order prohibiting a variety of activities.
Although authorities, such as the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC), have promised to step up oversight, they have not disclosed specifics about the process because it is private. The activity, which Reuters is revealing for the first time, reveals how the agencies are fulfilling that commitment and implies that, despite high interest rates and a slowing economy, they are still concerned about the health of some lenders.
Quarterly Data Reports
Source- Money
According to an FDIC representative, the organization has long used off-site monitoring to support and direct exams and has created systems for this purpose using quarterly data reports.
“Off-site monitoring programs can provide an early indication that an institution’s risk profile may be changing,” he stated.
He continued, citing inflation and high rates as the main obstacles. “CAMELS ratings, including those that are changed on an interim basis, are confidential, but as a general matter, ratings trends tend to deteriorate as macroeconomic conditions worsen,” he said.
Since First Republic, two tiny banks have failed, and the FDIC recently added another to its list of troublesome banks.
